SMEs – or small and medium-sized enterprises – are at the heart of the UK economy. Small businesses account for 99 per cent of all British businesses and contribute an estimated £2 trillion combined in annual turnover to the UK economy.
But what is an SME and how are SMEs defined? Plus, read on to find out how the government’s categorisation of small businesses is changing in April 2025.
What does SME stand for?
SME stands for small or medium-sized enterprise. It’s a term used to categorise businesses that are smaller than large corporations, typically based on factors like their number of employees and turnover.
SME definition
The UK definition of SME is generally a small or medium-sized enterprise with fewer than 250 employees.
Within this umbrella there are three different categories:
- microbusinesses
- small
- medium-sized
Companies Act 2006 – SME definition
The Companies Act 2006 splits SMEs into three classifications based on their size, turnover, and balance sheet total.
The Companies Act 2006 definition is important because the category you’re in defines how you have to file your accounts with Companies House.
Changes to company size thresholds from April 2025
The government is updating the company size thresholds from 6 April 2025. The thresholds for turnover and balance sheet total are increasing, but the number of employees is staying the same.
Here are the key details you need to know:
| Turnover threshold | Balance sheet total | Number of employees | |
| Microbusiness | £1m (up from £632k) | £500k (up from £316k) | 10 |
| Small business | £15m (up from £10.2m) | £7.5m (up from £5.1m) | 50 |
| Medium-sized business | £54m (up from £36m) | £27m (up from £18m) | 250 |
How will these changes affect small businesses?
The April 2025 changes to company size thresholds are expected to downsize:
- 113,000 small businesses to micro businesses
- 14,000 medium-size businesses to small businesses
- 6,000 large businesses to medium-sized
The government says the new categorisation will reduce regulation and complexity for many businesses. For example, those that move to the microbusiness category will no longer need to provide a director’s report, while those moving to become a small business will no longer need to do a statutory audit of their annual accounts.
What is the EU SME definition?
The UK’s definition of an SME only slightly differs from the EU, but it’s useful to consider the current EU meaning too. According to the EU definition of business sizes:
- a medium-sized business has fewer than 250 employees and either a turnover of up to €50 million or a balance sheet total of up to €43 million
- a small business has fewer than 50 employees and either a turnover of up to €10 million or a balance sheet total of up to €10 million
- a micro-business has fewer than ten employees and either a turnover of up to €2 million or a balance sheet total of up to €2 million
The main difference between the two definitions is that the figures will be different because of the currency conversion rate.
How many SMEs are there in the UK?
There are 5.45 million SMEs in the UK, according to the latest government figures. Some 1.4 million (26 per cent) of those SMEs have employees, while 4.1 million (74 per cent) don’t employ anyone.
Medium-sized enterprises (50 to 249 employees) make up 0.7 per cent of the total business population. And there are only 8,250 businesses that employ 250 or more people, equating to only 0.2 per cent of the businesses in the UK.
What role do SMEs have in the economy?
Millions of people work for SMEs – they’re a key driver of economic growth and sustainability. In fact, SMEs make up 99.2 per cent of all businesses in the UK, so are enormously important to the UK economy.
SMEs are also exposed to the volatility of the economy. When the tax burden is high and consumer spending reduces, small businesses feel the effects.
Our guide to small business grants outlines the support that’s available, but as our research in the 2024 Small Business Manifesto showed, 98 per cent of SME owners feel the previous government hadn’t done enough to support with funding.
Why is it important to know if you’re an SME?
Understanding how your business is categorised is helpful for a variety of things. Like when filing your accounts with Companies House, you’ll need to share the size of business when applying for:
- business grants or loans
- energy contracts
- business insurance
Why is SME insurance so important?
Although it’s hugely rewarding to do what you love and work for yourself, running your own business does come with risks. By insuring your business with the correct cover for your trade, you’ll be better protected when problems unfortunately arise.
Owning your own business doesn’t only require your specific trade or industry knowledge, you also need to develop your business knowledge. Knowing when to invest in things such as insurance is a key part of this.
SME business insurance can cover you in a range of ways. You could damage a client’s property or one of your employees could get injured while working for you. Your trade tools or stock could be stolen, or something could happen to your building premise. Insurance will help you cover the costs associated with these setbacks.
SME examples (small to medium size enterprises)
Here’s a quick list of the type of business you’d expect to be SMEs. Click the link on each to read about the types of SME insurance they might need:
- contractors
- online retailers / shops
- consultants
- freelancers
- cleaners
- hairdressers
- photographers
- tradespeople
Useful guides for business owners
- How to go self-employed in the UK?
- Which bank has the best business bank account?
- The best invoice apps for small businesses
- What type of business insurance do I need?
Ready to set up your cover?
As one of the UK’s biggest business insurance providers, we specialise in public liability insurance and protect more trades than anybody else. Why not take a look now and build a quick, tailored quote?